Business News

Malaysia Airlines to shed 6,000 staff as part of overhaul plan after disasters

by
The Canadian Press | Story:
121864 -
Aug 29, 2014 / 4:00 am

Photo: The Canadian Press. All rights reserved.

Managing Director of Khazanah Nasional, Berhad Azman Mokthar speaks during a press conference in Kuala Lumpur, Malaysia, Friday, Aug. 29, 2014. Khazanah Nasional, the state investment company that owns 69 percent of Malaysia Airline, said the overhaul includes the establishment of a new company that will take over the existing Malaysia Airlines business and its reduced staff. The airlines will cut 6,000 workers as part of an overhaul announced Friday to revive its damaged brand after being hit by double passenger jet disasters. (AP Photo/Lai Seng Sin)

KUALA LUMPUR, Malaysia - Malaysia Airlines will cut 6,000 workers as part of a $1.9 billion overhaul announced Friday to revive its damaged brand after being hit by double passenger jet disasters.

The staff reduction represents about 30 per cent of its current workforce of 20,000. A search for a new CEO is underway but there is no move to change the airline's name, which some branding experts had said was necessary for a successful makeover.

Khazanah Nasional, the state investment company that owns 69 per cent of the airline, said the overhaul includes the establishment of a new company that will take over the existing Malaysia Airlines business and its reduced staff.

The revamp and new investment in the carrier will cost about 6 billion Malaysian ringgit ($1.9 billion). Analysts say the substantial staff cuts suggest the airline will reduce flights to Europe and China.

The twin disasters and ongoing financial woes "created a perfect storm for the restructuring to take place," said Khazanah Managing Director Azman Mokhtar. "We need to have a fresh start."

The plan aims to "strike a balance between Malaysia's desire to revive a national carrier against the prudent use of public funds," he said.

The airline will be removed from the Malaysian stock exchange and taken completely under the wing of the government. Khazanah, which previously announced that it plans to take 100 per cent ownership, aims to restore Malaysia Airlines to profitability by the end of 2017 and then relist its shares on the stock exchange by the end of 2019.

A substantial revamp has long been on the cards for Malaysia Airlines, which was struggling with chronic financial problems even before it was hit by the double disasters this year.

Investigators continue to scour the southern Indian Ocean for Malaysia Airlines Flight 370 which veered far of course while en route from Kuala Lumpur to Beijing on March 8 with 239 people on board. In July, 298 people were killed when Flight 17 was blasted out of the sky as it flew over an area of eastern Ukraine controlled by pro-Russian separatists.

The tragedies have scarred the airline's brand, once associated with high-quality service. Travelers on recent long-haul flights have posted photos on social media of nearly empty cabins and departure lounges. The airline says passengers fell 11 per cent in July from the year before.

Azman said Khazanah's 6 billion ringgit investment "will not be a bailout" and that the investment company will get its money back if the airline follows strict conditions laid out under the 12-point plan restructuring plan.

Khazanah, which has previously pumped 7 billion ringgit into the airline, said it would consider selling all or some of its stake to "strategic buyers from the private sector" once the carrier returns to the stock market.

But after four previous restructuring in a dozen years, the latest plan was met with some skepticism by analysts.

"It's like a fairy tale that you tell your baby to put him to sleep. It has a happy ending," said Maybank analyst Mohshin Aziz.

He said said staff reductions were one of the restructuring plan's key points because "that automatically tells you they're going to cut their capacity by a similar quantity â€” one third â€” as well."

Analysts have been predicting the airline will cut unprofitable routes to China and Western Europe, where many of the passengers in the two disasters were from.

Azman said Khazanah has recommended to the government that the Malaysia Airlines name remain unchanged. He also said there are no plans to sell its profitable maintenance arm.

In releasing its latest quarterly financial result, a loss, on Thursday, Malaysia Airlines said the worst financial impact from the disasters will come in the second half of this year.

Khazanah has begun a search for a new chief executive for the airline, which is likely to be completed by the end of this year.

Current CEO Ahmad Jauhari Yahya will continue to head Malaysia Airlines until its new incarnation is established in July next year.

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